Call Debit Spreads Explained
Вставка
- Опубліковано 5 сер 2024
- Call Debit Spreads Explained | Coffee With Markus | Episode 58
Intro: 0:00
What's Happening In The Markets: 1:43
Viewer Comments & Questions: 10:19
What I'm Trading: 12:39
Option Spreads: 17:32
Deep Dive Q&A: 34:31
Q: Is a Vertical Spread the same as an Option Spread? 34:35
C: A normal Call is better for me. 34:57
Q: Would you buy and sell these as separate contracts, and also close them out separately? 36:30
Q: How does it work with the assignment? 39:03
I'm going to show you the good, the bad, and the ugly of call debit spreads!
Now...
There’s a ton of hype around option spreads as they become more and more popular.
I don’t personally think they’re ALWAYS good to trade, as some may have you believe.
But there are some instances where they’re a really good trading tool.
We’re going to discuss what Option Spreads are, why you should trade them, and when to trade them.
Then, we’ll look at some very specific examples of option spreads.
What’s the difference between buying a call, and a call debit spread?
Purchasing a call option means you have a limited downside risk (cost of the contract) and unlimited upside potential. Your break-even price is higher with a call option because you must factor in the cost of the option contract.
What is a call debit spread? It means you’re buying a call option at a lower strike price while selling a call option at a higher price. This is completed in a single transaction, known as a call debit spread.
Buying a call and selling a call at the same time reduces the overall capital needed to take on the position. The income that is generated for selling the higher call option is credited to the transaction. This will typically lower amount of capital at risk needed to take the position. This also results in a reduced break-even price, increasing the probability of the trade being profitable.
The only downside to a call debit spread is that it has limited upside potential. The upside potential to the trade is limited by the width of the spread or the cost of the premium.
Call debit spreads are very powerful tools, let's look at a detailed example.
By the way, If you didn’t know, I like to pick my options from the PowerX Optimizer.
If you’re not familiar with this revolutionary software, check it out HERE
For this example, we’re going to look at Bloomfield Energy (BE).
If I decide to purchase a $9 call option, the price would be $170. The upside to the trade is unlimited, and the risk of capital is limited to $170. The break-even price for this trade is $10.70.
If I decided to purchase a call debit spread, I would buy a $9 call and sell a $13 call. The capital required to buy this position is only $120 dollars, and the upside potential is $280. The break-even price for this trade is 10.20.
Buying a call debit spread reduces the overall cost of the trade, and lowers the break-even price. This means the stock only needs to move $1.20 and the trade will be profitable. This increases the likelihood of this trade being profitable!
Now you’re seeing the benefit of using a call debit spread!
This video is the first part of a series that will be discussing credit and debit spreads.
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Very helpful video. Explained options spread so much better than any other videos I've seen. Thank you for going over the different scenarios together and slowly.
😊 You are welcome! I am glad that this helps!
As always, Markus, a superior explanation of a complex Vertical trade. I count on you always to make the difficult concepts seem simple. You're helping me to see how to be more successful in my market trading. Thanks a mil! (hopefully ;-)
Hi Joel, thanks for watching. Glad it helped. Take care - and make money! 😀👍
So glad I watched this video, it's helped improve my knowledge and the Q&A at the end was invaluable 👍
Awesome! Thank you for watching! :)
The #1 stock market channel ever . i didnt find any better channel then this since last 2 years . very clear way of explaining things and this daily show is super helpfull . Thank u markus and mark
Awesome! I am glad that this help. ;)
Have a great day off! Thank-you for the excellent teaching:D
Thanks, Julie! “See you” on Monday!
As always, your videos are informative and easy to listen to. I have learned a lot from you.
Thank you.
Awesome! I am glad that this helps. ☺️
Thank you for the coffee mug!!!
You are welcome! Enjoy it 😀👍
Great presentation Markus. Great delivery. Thanks Chris
Thank you! :)
Markus always explains things so simply wow 🙌
Thank you! :)
very good explanation some other channels they have long explanations i dont understand anything here its incredibly clear and simple to understand
Hi Earth Last Day channel, thanks for watching. And thanks for your feedback. Much appreciated. "See you" in the next video 👍
Thank you so much for sharing your strategy, and been a honest person, God Bless you.
Hi Republic Videos, thanks for watching. And thanks for your feedback. Much appreciated. "See you" in the next video 👍
Nice presentation today Markus. Thanks.
Hi Richard. Thanks for watching. And thanks for your feedback. Much appreciated. "See you" in the next video 👍
Hey Markus, glad I ran across your channel. I just started trading in April and it’s really exciting! Made some mistakes for sure but I have made some rewards, and thankfully they outweigh the mistakes haha. I am really interested in the power x optimizer but as a current disabled veteran on a fixed income and stuck in a 9-5 job that price while completely deserving of it, is well out of my range! However I will continue to watch your show and learn all I can and one day maybe I will be able to work a couple hours in the morning trading and spend the rest of the day flying to the keys!!! Thanks for all you do Markus!
HI Brick, thanks for your feedback. And thank you VERY much for your service and everything you did for our country!!!
Stay in touch and let me know how your journey goes, and what I can do to help. 😀👍
makes great sense Markus! thanks!
Hi Glenn Ericksen, thanks for watching. And thanks for your feedback. Much appreciated. "See you" in the next video 👍
Markus thanks again for informing us on this. It kinda seems like its a strategy with a pre-determined stop loss and profit margin to me, a newbie trader. Also DEFINITELY interested in the PXO. Looking forward to using it to do some practice trades while I get my $$$ together to do it for real :)
Enjoy your time off!
thank you for using chapters. so helpful!
You are welcome! :)
Thank you so much.
You are welcome! ;)
great explanation thank you
Awesome! Thank you for watching! :)
Getting into trades is easy... You do a great job of teaching that. Would you mind explaining how to manage a trade once you're in it. How do you and when can you take profits from this trade? Do you just wait for expiration, and the broker will handle it? (I doubt it.) Can you close these trades once you hit max profit, to protect against it moving against you? Etc.
Thank you Markus for taking the time to explain and go over this. Much appreciated. That was very helpful.
I am glad that this helps! :)
What happens when the stock moves to or passes the sold leg..do you get exercised?
Happy new year sir. Thanks for your support. First time I find a master like you. Your clarity of explanation is really super. I'm new in stock market. I lost all my money doing option trading without understanding it. I need your help to improve my option trading. Please help me.
Hi there, I have something for you. Here's an "Options 101" playlist: ua-cam.com/video/EyfuSwO42lI/v-deo.html
Does this help? 😀👍
Like the video in the frame
👍👍
Thanks, Dmitry. I appreciate the feedback! 😀👍
Very clear⛺️
Awesome! I hope this helps. 😉
Yeees so helpful!
Awesome! :)
Great.
Awesome! Thank you for watching! :)
heck yes!
Awesome! Thank you for watching!
Heck yessss
Awesome! Thank you for watching! :)
Great stuff. 28 minutes in so apologies if I’m getting ahead of myself or if this is a silly question but curious if you have videos or can answer here on whether it makes sense to do this with strike prices that are ITM? Thx in advance
I have no video about that but stay tuned to our daily Coffee With Markus and Mark show.
How do you figure out max reward? Pretty much once it reaches the sell number?
And can you sell it off once the reward limit has been met, or do you have to wait till end of the week and risk losing it?
Heck yeah
Awesome! Thank you for watching! :)
Heck yes!!!
Thank you! :)
heck yes
Awesome! Thank you for watching! :)
Yes. I like your courses. Teach me please
Awesome!
Markus, I am a beginner. Can you tell me, you can do option spreads sell cover call and sell put at the same expiration date ? So you can collect both premiums at the same experation date ? Also, what is the typical margin requirement for these spreads ? Thanks.
I think it makes sense
I am interested in the power X optimizer at a better price. What kind of specials will you be running for the 4th?
Hi Carl, shoot an email to the team at support@rockwelltrading.com, and they can give you more details 😀👍
Is it required to own 100 shares of the underlined stock before one can do the call debit spread options?
I am going to call Rockwell this week.
Sounds good! You can call or text us: +1 (512) 337-1885. Talk soon.
Hello Markus, i’ve been using call spreads with the power x optimizer and prior to that, the part that i still don’t understand completely is the time decay variable as you know on the examples given on the video if you are doing a call spread at 9-13 strike prices an the stock rises above 13 that doesn’t mean you get the max reward as the time plays an important portion on that.... could you explain how time is related to the options?
That's a great question! I'll do another video on this since it's easier to show it in a video than explain it by text. Stay tuned! 😀
Hi Markus! Do you suggest shorter or further out expiration dates for vertical spreads?
I like to trade Weekly Options that are 1-2 weeks out. That gives me the most flexibility. 👍
Hi Markus, when trading stocks, why not use just one buy bracketed order instead of submitting two orders (buy order + stop loss & OCO profit target after the buy order executes).
Hi Guy, even when you use a bracket order, your broker actually places TWO orders in the market. The main difference: They are linked as "OCO" orders, i.e. if one gets filled the other one gets canceled. But option spreads are something different, as you can see in the video. Making sense? 😀👍
Anyone knows which trading tool he's using? Doesn't look like Tasty or Webull. Thanks.
Interested in your software... Where can I see it in live-action or do you offer a trial before purchase?
Hi Gary, please contact the team at support@rockwelltrading.com, and Paul or Raza can give you a 1-on-1 tour of the software so that you know exactly what it can do. Both are real traders who are using the software every day for their own trading.
Good
Awesome! Thank you for watching! :)
Good video!
I am interested in using the same SW for calculating profit/loss. What SW is it?
Do you mean the broker platform? That is tastyworks. Does this help?
How do we find a cheap trade, high probability compared to gain/loss ratio.
Hey Markus. Do you need a margin account for this and what level broker permission is required ?
Hi KW, you can definitely trade spreads in a cash account.
And as far as I know you can also trade debit spreads in a retirement account.
You need Level 3 permission from your broker to trade spreads.
Does this help?
Do you have a video on Long put verticals?
Not yet, but I will put it on the list 👍
What happens if my buy strike price below my sell strike price and my sell strikes price also below current stock price ? Any profit there ?
If the stock price moves below your SELL strike, you simply keep all the premium, i.e. you're making money.
And when the stock price moves below your BUY strike, then you lose some money.
Does this help?
@@rockwelltradingservices I do call debit spread , I paid upfront cost, I don't receive premium, Does the stock price suppose to go up past sell strike in order to make money?
Got a debit spread in upst 115/120 expire April 16th . I’m hoping to learn about buying more . Just a little lost .
Just keep watching my channel. 😊
Thank you I’m planning on it I’m glad I came on here .
😊 You are welcome! I am glad that this helps!
Can you spend a coffee show talking about rolling options
Hi Eduardo, yes, that is a great idea! 😀
Stay tuned.... 👍
Hi Markus, what city are you in? Do you hold a class there?
Hi Lien. I live in Austin, Texas. As of now, we have not finalized our face-to-face events. I will update during my Coffee With Markus whenever we have set the date. ;)
how do you determine what strike price on the sell side
For Debit Spreads or Credit Spreads?
@@rockwelltradingservices iF YOU DO A CALL OPTION AT $9 HOW DO YOU DECIDE EHAT THE DEBIT SPREAD CALL SHOULD BE? YOUR EXAMPLE WAS $12.00 OR $13.00
When you BUY a Call at 9, then you need to decide how far the stock might move. If you think it won't move higher than $12, then you can sell a 12 Call. If you think it could go to 15, then you would sell a 15 Call (although there won't be much premium in it).
Does this help?
what can I do to get a powerx optimizer
You can purchase it here powerxoptimizer.com/
Markus I dont get it how what exactly happens to buy a 9C and sell a 12C at the same time. Maybe explain more basic please
If the option moves up to 12 and the person who bought the option decides to exercise his option and wants to own the stock, you already own it at 9.00 and still make money selling at 12.00 dollars.
@@boyhowdy5893 Thanks Kevin. I was going to ask Markus the same thing. But when exactly do I have to buy the 9 to satisfy the sale at 12? Same day as 12 is exercized? sooner?
Is it too late to receive the free course?
Hi Greg! We have something better which is available until Sunday! Here is the link bit.ly/ThetaKings
How do i take your wheel class
Hi Hayes Kingdom. Here is the link to the class www.rockwelltrading.com/products/the-option-income-wheel/?
Video starts at 23:50
Thank you for watching! :)
Does this strategy mean that I do not have to have $1,200 available in my account in order to sell the $12 call?
Exactly!
Great! Thank you!
You are welcome! 😊
@@rockwelltradingservices Me again Markus. Along the lines of Audrey's question, how do I obtain the shares to sell at 12 if I have not exercised my $9 call purchase. I thought I would have to have at least $900 available to buy the shares before I can sell them at 12. I fully understand your example as far as it goes but need help understanding the steps to complete it.
Hi Markus, wanted to give you my feedback about your new framework, I prefer the original way since it was more like being in your office with you.
Thanks for the feedback, Melissa. Much appreciated. I think, I'll do a poll in the next Coffee with Markus and let Y'ALL decide what you like best 😀👍
TOS lets you do options in the cash account, no margin is necessary. I checked this morning, 10/20/2021. Sorry, I am a year late.
No worries. 😊 Thank you for watching!
Markus never discusses Implied volatility,,, why?
I thought I did but I just searched all my videos, and somehow I must have planned it and never recorded it. I'll change that. Video on IV coming soon! :-)
Interactive Brokers requires margin account
Interesting. Good to know. Thanks for sharing.
Going to be honest, I got lost.
Let me know what you need clarifications with. :)
Heck yes
Awesome! Thank you for watching! :)